A failure by Congress to raise the nation's borrowing limit "could severely damage the global economy," the International Monetary Fund said Tuesday as it trimmed its global economic forecast due to slowing growth in emerging markets.

If Congress doesn't increase the nation's borrowing authority this month, "It would probably lead to a lot of financial turmoil," IMF chief economist Olivier Blanchard said at the annual meeting of the IMF and World Bank. "It would be an issue for all credit markets, including China."

Blanchard added that the current federal government shutdown — resulting from a separate standoff over funding the government — would hurt the U.S. economy and, in turn, the global economy, only if it persisted for several weeks.

"Our assumption is that the shutdown will end and there'll be no problem raising the debt ceiling," Blanchard said.

The IMF also cut its global growth forecast to 2.9% in 2013, down from its 3.2% projection in July. For 2014, it now forecasts 3.6% growth, down from its forecast of 3.8% in July.

"The world economy has entered yet another transition," Blanchard said, noting that growth in the U.S. and other advanced economies is picking up, while growth in China and other emerging markets is slowing.

In the U.S., the IMF predicts the economy will grow 1.6% this year and 2.6% next year, down slightly from its July forecast. The private sector is strengthening, Blanchard said, but excessive federal belt-tightening is hampering growth. The cuts, he said, "are too large and too arbitrary."

The eurozone, meanwhile, is slowly recovering from recession, largely because "of a change in mood" which could be "self-fulfilling if consumers and firms decide to continue to increase spending." But southern nations such as Spain and Italy "are still struggling," with rising exports failing to offset falling demand from domestic consumers.

In emerging markets, growth is slowing in part because of a sharp drop in commodity prices and rising interest rates. Emerging markets are projected to expand 4.5% this year and 5.1% in 2014, down about a half a percentage point in both cases from the IMF's July forecast.

China must rebalance its economy "toward (domestic) consumption" and away from exports while India and Brazil create a friendlier climate for business investment. Blanchard said.

He noted that foreign capital is fleeing emerging markets as the Fed signals its intention to pull back its stimulus, a development that has pushed up U.S. interest rates and made foreign investments less attractive. He said emerging markets as a partial response should lower their exchange rates — which would make their exports more attractive to other countries.